Student loan interest rate proposal draws critics

President Barack Obama has offered a way to keep interest rates on student loans low, but critics say it might not be a long-term solution.

Under Obama’s proposed budget, the interest rates on subsidized Stafford student loans will fall to an all-time low of 2.79 percent next year.

Each year, the interest rate on subsidized loans would be based on the market value of a 10-year Treasury note.

But his plan does not include a cap on how high the market can drive up student loan interest rates.

The 3.4 percent interest rate on subsidized student loans was scheduled to double last summer, which Obama criticized in a speech at UNC-CH in April 2012.

Congress eventually delayed the increase until July 1.

Kristin Anthony, assistant director of UNC-CH’s federal direct student loan programs, said she supports an interest rate cap.

At the same time, doubling the interest rate would harm students more than Obama’s proposal, she said.

“Unless something really bizarre happens to the U.S. economy, forecasters can successfully predict that the Treasury note will … only change a little in the next 10 years,” Anthony said.

“If someone can say that for the next 10 years that we’ll have relatively low interest rates, then I like that idea.”

She said that if the value of Treasury notes increases, Congress will need to propose a new solution.

UNC-CH recipients of federal subsidized loans pay about $150 per month on average, but if the interest rate doubled to 6.8 percent, students would pay about $30 more.

Bradley Ballou, a federal lobbyist for the UNC system, said the system does not have an official position on Obama’s proposal.

“I think everyone agrees they don’t want it to double, but they disagree as to how to do that,” Ballou said.

Instead of an interest rate cap, Obama’s budget proposes to allow all students to qualify for monthly repayment plans based on their incomes. Students would not pay more than 10 percent of their income every month, and their debt would cancel after 20 years.

Christopher Wallace, a senior economics major, said an income-based repayment plan might result in uncertainty for recent graduates.

“There’s a lot of volatility in income nowadays, especially with unemployment so high,” he said.

New legislation will not affect the interest rate on seniors’ loans, but Wallace said what happens to future students matters to him.

“You can’t just look out for yourself,” he said.

Contact the desk editor at state@dailytarheel.com.